NetApp is broken, but here's a trade

Thomas H. Kee Jr. is the president and CEO of
Stock Traders Daily (dotcom), where he offers strategies and newsletters to
both institutional and individual investors, and he manages money privately for
both institutional and individual investors through Equity Logic LLC. A
specialist in technical analysis, Kee is also the founder of one of the leading,
longer-term fundamental economic and stock market indicators in history, The
Investment Rate. This proprietary tool, which is available to clients, too,
predicts major economic cycles well in advance, and has been accurate since
1900. Using his broader observations of the economy to define disciplines, Kee
has been able to accurately predict market cycles in advance using his
multi-tiered technical indicators, and that combination has kept him ahead of
the curve since starting Stock Traders Daily in January 2000.

After Hewlett-Packard's
HPQ, +0.15%
comment last night and their anticipation of lower corporate technology spending EMC
EMC, -1.11%
and NetApp
NTAP, +2.48%
are taking it on the chin. At the time of this article NTAP was down 12%, so I will focus on it.

The long and short of it

Over the past few days NTAP began to break below defined longer-term support levels. It started to break below $33.64 and that was a major red flag. Sellers were coming in before today, so, technically, the stock was offering red flags before the Hewlett news hit. From here, there are no obvious longer-term support levels. The stock was trading at $28.48 when this was written, and it is also below both midterm and longer-term support. There are no buy signals in NTAP for these durations as a result.

By rule, these former levels of support have been converted into resistance, and they now act as barriers to any upside move in NTAP. There is, after careful analysis, only one obvious support level in NTAP at this time, and that is based on the near-term assessment. Near-term support exists at $27.38.

It NTAP holds $27.38, it may bounce a little, but the stock is broken on a mid- and longer-term basis, so anything more than a quick trade from here looks unwise. My assessment does not support buying NTAP for any length of time other than intraday, but instead my assessment supports shorting the stock if mid- or longer-term converted resistance is tested again.

For example, if NTAP were to increase back to $30.24, it would be a short signal. The only way this assessment would change is if NTAP increases back above converted resistance levels (former support) offered in the mid- and long-term assessments.

If you are trading NTAP, be careful and remain disciplined. Using this dataset, trading plans can easily be derived, depending, of course, on duration interest, but risk controls are equally as important. By rule we use an average 0.42% stop loss for these trading plans.

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